“I was asked to lay out the case for the US being mid-cycle,” said my favorite strategist. “Residential housing is 4% of GDP now, that’s consistent with past recessionary levels. So perhaps it jumps to 8%,” he continued.

“Equipment and machinery spending is just 6% of GDP.” Pretty consistent with previous recessions. “So maybe both expand, and incomes rise.” Which leads to higher inflation and shrinking profit margins. “Then perhaps the Fed tolerates rising prices which means that nominal growth remains strong even if real growth rates slow,” he postulated.

“So in that case, workers do better, and companies are worse off on a relative basis. But in that 7% nominal GDP world, inflation might mask the pain well enough to allow stocks to sail through,” continued my favorite strategist.

“You think about that hypothetical and it’s possible,” he said. “But then you listen to what the companies are saying, and you walk away with the sense that there’s just no way.” Homebuilding stocks are -30% from the January highs.

“If you just look across the spectrum, interest-sensitive equities are screaming late-cycle.”

“Making the mid-cycle case raised my conviction that we’re late-cycle,” he said. “America’s fiscal boost masked the natural cycle dynamics.” The US is the outlier. In dollar terms, of the major markets, only American stocks are higher on the year.

“So if US stocks catch up and crash from here, what happens next?” he asked rhetorically. “I think most people will conclude we’re headed into another depression. But I think there will be great things to buy. Probably in the places that are already crashing and burning.”

Positioning

“Hidden dollar shorts throughout the global banking system were overwhelming and ill understood in 2008,” said the strategist. “So when the dollar began to appreciate, you hit stop loss after stop loss.” Mexico’s peso plunged from 11 to 14 versus the dollar in no time.

“You thought, could this happen? And it could, anything can.” That’s how markets work. “It was difficult to understand the magnitude of the dollar shorts, but they were interwoven into almost every conceivable product. Everyone had the position. Just like the short-volatility trade today.”

Overall

“What song shall I play?” wondered Draghi, heart racing faster than in that moment before his first dose of QE. “Dancing Queen of course!” shrieked Mario, a closet ABBA fan. On went the headphones, out came the bone saw.

“Is That All There Is,” whispered Trump to himself, naming his all-time favorite song, Peggy Lee’s nihilistic 1969 hit, an exploration of life’s disillusionments, meaninglessness. On went the headphones, out came the bone saw. Before him sat Xi Jinping, China’s newly-anointed ruler for life, American rival, adversary, tightly bound, pouting, naturally. “Let’s make this really hurt,” said Trump, Peggy Lee blaring in his Bose. He rolled in a Bloomberg, images of the Shanghai Composite plunging to new 4yr lows, the renminbi teetering near the key 7.00 level, the ticker declaring: America Exits 144yr Old Postal Treaty. “Leave me my middle fingers,” taunted Xi.

Theresa May scrambled for a fitting song, Junker did too, neither yet sure who will wield the bone saw in the gruesome finale.

And of course, Dr. Salah al-Tubaigy, autopsy expert, advised Mohammed bin Salman’s security officers to crank their favorite songs. On went their headphones. They dismembered Jamal Khashoggi, Saudi Arabian dissident, patriot, critic, writer. As the rest of the world listened intently, for even the smallest sound. To understand whether, when forced to choose in broad daylight between money and morality, today’s western leaders turn up the volume and pull out the bone saws.